The table shows a consumption schedule. All figures are in billions of dollars. Refer to the above information. If planned investment was $20 billion, government purchases of goods and services were $20 billion, and taxes and net exports were zero, then the equilibrium level of GDP would be:
A) $600 billion
B) $640 billion
C) $680 billion
D) $720 billion

Question

The table shows a consumption schedule. All figures are in billions of dollars.  Refer to the above information. If planned investment was $20 billion, government purchases of goods and services were $20 billion, and taxes and net exports were zero, then the equilibrium level of GDP would be:
A) $600 billion 
B) $640 billion 
C) $680 billion 
D) $720 billion

Quizplus · Accepted Answer

To find the equilibrium level of GDP, we need to set aggregate demand (AD) equal to aggregate supply (AS). In this case, AD is equal to planned investment ($20 billion), government purchases of goods and services ($20 billion), and net exports ($0 billion), as there are no taxes. Therefore, AD is $40 billion.

The consumption schedule given in the table shows that at an output level of $680 billion, consumption is also $40 billion. This means that AS is equal to $40 billion at an output level of $680 billion.

So, at an output level of $680 billion, AD = AS = $40 billion. This is the equilibrium level of GDP.

The Table Shows a Consumption Schedule